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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 24, 1997
HOLMES PROTECTION GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-24510 06-1070719
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
440 Ninth Avenue, New York, New York 10001-1695
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-760-0630
Not Applicable
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(Former name or former address, if changed from last report)
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Item 5. Other Events.
As set forth in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997 (the "Form 10-Q"), as of September 30, 1997,
the Company had $1,000,000 of borrowing capacity remaining under its bank
credit agreement and was not in compliance with certain of the financial
covenants contained in the credit agreement. The banks waived such
non-compliance for periods prior to or ending on such date.
Based on financial information that became available to the Company after the
filing of the Form 10-Q, the Company determined that it would not be in
compliance with such covenants as of October 31, 1997; however, the banks
waived such non-compliance for periods prior to or ending on such date. The
Company does not expect that, absent changes in such covenants, it will be in
compliance with such covenants for November and December 1997. The Company is
in discussions with its banks with regard to obtaining a waiver of such
noncompliance. The Company does not presently have any remaining loan
availability under the credit agreement, and the Company is also continuing
its discussions with the banks with regard to additional financing that the
Company will require for its short-term operating and working capital needs.
In addition, as set forth in the Form 10-Q, the Company is exploring strategic
alternatives as part of an overall review of its business strategy, including
a possible sale or merger of the Company. In concert with the above actions
the Company is seeking to reduce costs by accelerating the consolidation of
recently acquired central stations and by initiating certain other operational
changes that are expected to result in cost reductions in other areas.
The banks have provided a preliminary indication that they may waive
non-compliance with the financial covenants referred to above through December
31, 1997, subject to the satisfaction of certain conditions. However, the
Company does not presently have any commitment from the banks for any such
waiver or for additional financing. If no such waiver is provided and the
Company is unable to comply with the covenants in the credit agreement for
November or December, the banks will have the right to declare all of the
loans outstanding under the credit agreement immediately due and payable.
As a result of matters set forth in the two preceding paragraphs, the Company
will reclassify the indebtedness of the Company under its bank credit
agreement as of September 30, 1997 (which was approximately $24,000,000 as of
such date) from long-term debt to current debt. However, the banks have not
accelerated, or taken any action to change the payment status of, such debt.
The Company continues to experience significant working capital constraints
resulting in part from its rapid sales growth and capital required to expand
its operations in new geographic markets. The Company is continuing its
exploration of strategic alternatives, including a possible sale of the
business, as referred to above. If the Company is unable to achieve a sale or
other strategic transaction in the near term, the Company will continue to
experience significant working capital constraints, and the Company can
provide no assurance that it will be able to obtain the additional financing
necessary to provide for its short-term operating and working capital needs or
to provide for the payments referred to in the following paragraph if such
payments should be required.
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Pursuant to agreements under which the Company acquired certain security
services businesses, the sellers of the businesses may elect, on or after
January 1, 1998, to surrender to the Company for cancellation the shares of
common stock of the Company that were issued to them in connection with such
acquisitions if the Company has not effected the registration of such shares
under the Securities Act of 1933 prior to such date, and the Company would be
required to pay such sellers the purchase price in cash. The Company may be
unable to effect such registration by such date. In such event, the Company
would seek to obtain extensions of such date from the sellers. If such
extensions were not provided and all of the sellers exercised such elections,
the total maximum amount of cash that would be payable to the sellers by the
Company would be approximately $4,000,000. The Company is engaged in discussions
for a guarantee or other arrangement that would provide funding for such
obligations if they become due but does not have commitments for any such
arrangement.
The Company is a defendant in certain litigation seeking damages for property
loss of approximately $2,000,000 to $3,000,000 (if recovery were had,
plaintiff would be entitled to 9% interest from 1991 on such amount) as to
which the Company has been informed that there remains only about $200,000 to
$300,000 of coverage under its primary insurance layer. In addition, a
question has arisen as to whether, if damages awarded exceed the $1,000,000
primary layer, the carrier for the next layer of coverage (for $5,000,000)
will respond to the alleged damages being sought in this litigation. The
Company does not believe that a coverage question exists as to the carrier
providing the third layer of coverage (an additional $5,000,000).
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Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
None.
(b) Pro forma financial information.
None.
(c) Exhibits.
99.1 Amendment dated May 9, 1997 to Amended and Restated
Credit Agreement dated as of December 31, 1996
among Merita Bank Ltd, Bank of Boston Connecticut,
Holmes Protection Group, Inc. and Holmes
Protection, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HOLMES PROTECTION GROUP, INC.
Date: December 15, 1997 By: /s/ George V. Flagg
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Name: George V. Flagg
Title: President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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99.1 Amendment dated May 9, 1997 to Amended and
Restated Credit Agreement dated as of
December 31, 1996 among Merita Bank Ltd,
Bank of Boston Connecticut, Holmes Protection
Group, Inc. and Holmes Protection, Inc.
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Merita Bank Ltd
437 Madison Avenue
New York, New York 10022
Telephone: 212-318-9300
Telefax: 212-421-4420
May 9, 1997
Holmes Protection Group, Inc.
440 Ninth Avenue
New York, New York 10001-1695
Re: Credit Agreement dated as of August 30, 1996 by and among Merita Bank
Ltd, Bank of Boston Connecticut ("the Lenders"), and Holmes Protection,
Inc. and Holmes Protection Group, Inc., as Amended and Restated ("Credit
Agreement") - Amendment.
Gentlemen:
We hereby amend Section 7.19 of the Credit Agreement effective as of January
1, 1997. The changes effected by this letter will be further documented by an
amendment to be prepared by legal counsel to the Agent that will reflect the
attached Schedule A.
It is the understanding of the Lenders that there is no breach of the
Financial Covenants of Section 7.19, as amended, for the quarterly period
ended March 31, 1997. This understanding relies upon the accuracy and
completeness of the financial statements of that period provided by
Holmes--Protection Group, Inc. ("HPG").
HPG has represented to the Lenders that as of January 1, 1997, the effective
date of the amendment, there was no breach, nor is there currently or
prospectively, a breach of the Financial Covenants of Section 7.19, as
amended.
This amendment does not affect the rights and remedies of the Lenders, except
as specifically stated herein. The Credit Agreement is, and shall continue to
be, in full force and effect.
Sincerely,
Merita Bank Ltd Bank of Boston Connecticut
By: /s/ Charles Lansdown By: /s/ Roger Roche
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Title: Vice President Title: Director
By: /s/ Eric I. Mann Agreed and Accepted
---------------------------- Holmes Protection Group, Inc.
Title: Vice President
By: /s/ Lawrence R. Irving
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Title: V.P. - Finance
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Schedule A Original Amended
Covenant
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Maximum -Annualized quarterly -Annualized trailing 3 months
Adjusted (Total Debt/EBITDA) -Pro-forma EBITDA of acquisitions -Actual funds borrowed for recent
added to denominator for a quarter acquisitions subtracted from
-3/31/97: 1.95x numerator for 3-4 months
6/30/97: 1.50x -6/30/97 and thereafter: 3.0x
Maximum Unadjusted None -Annualized trailing
Total Debt/EBITA -3/31/97: 5.25x one month
4/30/97: 4.50x two months
5/31/97: 4.25x three months
6/30/97: 4.00x three months
All months: 4.00x annualized trailing
3 months
Maximum Total Debt/RMR -Tested quarterly -Tested monthly
-20.0x at all times -20.0x (Unchanged)
Maximum Attrition -12% p.a. -Unchanged
-calculated on two quarters
annualized starting 12/31/97
Minimum Net Worth -$56 million -$53.5 million (after $1.5 million EDS
-Tested quarterly contract cancellation charge and $1
million additional depreciation and
amortization from acquisitions)
-Tested quarterly (unchanged)
Minimum EBITDA/Interest Expense -4.0x -4.0x (Unchanged)
-Tested quarterly -Tested on trailing 3 months starting
6/30/97
Capital Expenditure Control -Maximum Total Debt/(EBITDA - CapEx) -Minimum EBITDA/ (CapEx + Cash Debt
-Annualized quarterly Service)
-3.0x starting 6/30/97 -Annualized trailing 3 months
-6/30/97: 0.5x
9/30/97: 0.7x
12/31/97: 0.8x
3/31/98: 1.0x
Maximum Capital Expenditures -$8.5 million -$11.0 million
Minimum Debt Service Effective upon Conversion Unchanged
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